Nick Bruining: ATO penalties for businesses that fail to pay employee superannuation on time can really sting

The payment of compulsory super is something small business operators shouldn’t ignore.

Miscalculate the amount due, or make the payment after the due date, and the result could be a non-tax-deductible payment considerably higher than the original amount owed.

Missed payments are an ongoing compliance target for the Australian Taxation Office, and follow on from 2022 changes that scrapped a $450 lower limit before compulsory super was payable.

Employees — whether casual, part-time, paid by commission, piecemeal or otherwise — are entitled to compulsory super on all payments classified as “ordinary time earnings”. That applies to normal worked hours stated in an award or agreement. For everyone else, however, it usually includes all hours worked, including overtime.

Payments such as expenses and on-call allowances are not normally included but danger, site and retention allowances are. Your Christmas or performance bonus also attracts compulsory super, but your holiday leave loading does not.

It becomes more complicated if the employer fails to make the correct minimum payment by the due date. That day is no later than 28 days after the end of the quarter in which the amount became payable. That means, for example, for the period April 1-June 30, the total payment for the three-month period must have been made by July 28, or the ATO compliance regime kicks in.

It must be in the member’s superannuation fund by that date, not “on its way”. “The payment took two days to go through my bank” won’t cut it as an excuse with the ATO.

If the employer misses the payment or the date, they are required to proactively notify the ATO as soon as possible. This is not the time, as an employer, to stick your head in the sand.

If it’s the employee who ultimately notifies the ATO, the agency will not only investigate the complainant’s shortfall, but may also contact other employees.

Once a payment’s been missed, superannuation guarantee charge rules kick in.

For starters, payments such as overtime that might not have previously been included in the minimum super guarantee calculations are now included in calculating the amount owed. Ouch!

In addition to the 11.5 per cent contribution, a nominal missed interest charge is also applied at the rate of 10 per cent a year, calculated on a daily basis. In many cases, that’s at a rate higher than the super fund is paying.

Next, a $20 per member administration fee is charged.

This grand total is what the employer owes, and none of that late payment is tax-deductible. Double-ouch!

If the employer hasn’t proactively fessed up to the ATO about the late payment and it discovers the shortfalls through a “review” — possibly through an ex-employee’s tip-off — then things can get worse.

The ATO can apply “Part 7 penalties” which start at 200 per cent of the liability. Directors of companies can be held personally liable for super shortfall debts.

But here’s some good news if you’re an employer who’s missed super payments.

If you want to resolve the issue, making contact with the ATO will put you in a much better position. That will open up a range of options including payment plans and, in many cases, reduced penalties.

It won’t, however, let you off paying the super that’s owed. It is, after all, the employee’s money.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association